Federal Appeals Court Upholds SIPC’s Position In The SEC-SIPC Lawsuit

  • On July 18, 2014, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit issued a unanimous decision upholding the rejection of the SEC’s unprecedented lawsuit against the Securities Investor Protection Corporation (“SIPC”) over the Stanford Antigua bank fraud.
  • Every court to have considered the matter has now agreed with SIPC’s position.
  • Read the most recent court decision

 

What The SEC-SIPC Lawsuit Is All About


  • The SEC brought an unprecedented lawsuit demanding that SIPC guarantee the value of offshore certificates of deposit ("CDs") issued by the Stanford International Bank Ltd. in Antigua.
  • SIPC disagreed with the SEC’s position because it is in conflict with the Securities Investor Protection Act, the legislation that created SIPC and has guided it for the last 40 years.
  • SIPC is limited by law to protecting customers against the loss of missing cash or securities in the custody of failing or insolvent SIPC-member brokerage firms. SIPC was not chartered by Congress to combat fraud or guarantee an investment’s value, and its protections also do not cover investments with offshore banks or other firms that are not SIPC members.

 

Why The Securities Investor Protection Act Does Not Cover The Stanford-Antigua Situation


  • This case is about investments in certificate of deposits ("CDs") issued by the Stanford International Bank Ltd. in Antigua. Stanford International Bank Ltd. is an offshore bank: it is not a SIPC-member brokerage firm and has never been a SIPC member.
  • The Securities Investor Protection Act only covers the custodial function of a SIPC-member brokerage, by offering limited protection to customers against the loss of missing cash or securities when a SIPC-member brokerage firm is holding cash or securities for an investor but fails financially.
  • The Act does not authorize SIPC to protect monies invested with offshore banks or other firms that are not SIPC members. The Act also does not protect investors against a loss in value of a security, including because of mismanagement or fraud
  • In addition, this case involves CDs that were delivered, not a situation in which a SIPC-member brokerage firm had custody of securities but failed before delivery could occur.